New Ukrzaliznytsia head plans freight rate hike within month

Ukraine’s Cabinet of Ministers ruled on Aug. 9 to accept
the resignation request of Ukrzaliznytsia (RAILUA, UZ) CEO Wojciech Balczun and
appoint Yevhen Kravstov, the deputy infrastructure minister, as temporary
acting CEO. Following his appointment, Kravstov promised to agree to “some”
hike in UZ freight rates within a month, Interfax-Ukraine reported. He also
said that as of 2018, the company will offer a clear and transparent system of
revising freight rates.

As CEO, Balczun had insisted on the introduction of a
new system of freight rate adjustments starting this year, which would have
been linked to the producer price index. Based on its preliminary business
plan, UZ was expecting that freight rates would increase 22.5% since June,
which would enable it to generate additional revenue of UAH 6.7 bln this year.

Ukraine’s Infrastructure Ministry has the power to
approve freight transit rates for Ukrzaliznytsia. The last time the ministry
adjusted rates was in May 2016. Freight transit is the only profit-generating
segment for Ukrzaliznytsia.

Alexander Paraschiy: It looks
like the conflict between Balczun and the Infrastructure Minister was the key
reason why the ministry didn’t raise freight rates for Ukrzaliznytsia this
year. Now that someone close to the minister is running the company, the
chances for a rate hike have improved significantly, which is a positive
development for UZ.

What is negative in the current situation is that the
company has no CEO with full authority and won’t have a clear methodology for
revising freight rates in the long term. The latter means that, as usual, the
prospects of Ukraine’s rail monopoly will continue to depend on the will of the
infrastructure minister. We retain our cautiously neutral position on RAILUA
bonds.